Partly allowed

State of Kerala v. M/S Kurian Abraham(P)Ltd,Kottayam.

Kerala HC9 Apr 2012ST.Rev./138/2010

Case brief

AI extract

What is this about?

The Court revisited a sales tax refund claim where the respondent paid tax on raw material. It held that if such tax is part of the product price passed to customers, refund is barred to prevent unjust enrichment. The revisions were allowed by remanding the matter to the Assessing Officer to examine cost and recovery patterns. Notifications were assessed while deciding.

What did the court decide?

Revisions allowed; Tribunal and First Appellate Authority orders set aside; matter remanded to Assessing Officer to reconsider refund claim after examining tax inclusion in product price and consideri

State of Kerala Vs M/S Kurian Abraham(P)Ltd,Kottayam. — GST and Indirect Tax | Kerala HC (2012)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HON'BLE MR. JUSTICE BABU MATHEW P.JOSEPH

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MONDAY, THE 9TH DAY OF APRIL 2012/20TH CHAITHRA 1934 ST.Rev..No. 138 of 2010 ( )

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TA.117/2006 of STAT ADDL.BENCH, KOTTAYAM

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REVISION PETITIONER/RESPONDENT/REVENUE::

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STATE OF KERALA DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES ERNAKULAM.

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BY GOVERNMENT PLEADER, SOJAN JAMES

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RESPONDENT/APPELLANT/ASSESSEE::

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M/S KURIAN ABRAHAM(P)LTD,KOTTAYAM.

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BY ADV. SRI.A.K.JAYASANKAR NAMBIAR BY ADV. SRI.E.K.NANDAKUMAR BY ADV. SRI.K.JOHN MATHAI BY ADV. SRI.P.BENNY THOMAS BY ADV. SRI.P.GOPINATH

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THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 09-04-2012, ALONG WITH STRV. 139/2010, STRV. 140/2010, STRV. 141/2010 AND STRV. 142/2010. THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

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SU/-

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ST.Rev..No. 138 of 2010

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APPENDIX

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PETITIONER'S ANNEXURES:

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ANNEXURE A: COPY OF THE ASSESSMENT ORDER DATED 9-2-2005.

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ANNEXURE B: COPY OF THE ORDER OF THE DEPUTY COMMISSIONER (APPEALS) DATED 1-3-2006.

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ANNEXURE C: COPY OF THE ORDER OF THE STAT DATED 31-72009.

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RESPONDENT'S ANNEXURES: NIL.

/TRUE COPY/

P.A TO JUDGE

SU/-

“CR”

C.N.RAMACHANDRAN NAIR,J. &

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BABU MATHEW P.JOSEPH, J.

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S.T.Rev.Nos.138, 139, 140, 141,142 of 2010 ----------------------------------------------Dated this the 09^th day of April, 2012

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JUDGMENT

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C.N.RAMACHANDRAN NAIR,J

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Heard the Special Government Pleader for the State and counsel appearing for the respondent-assessee. Respondent is engaged in purchase of field latex and sale after converting it into centrifuged latex. Even though centrifuged latex is concentrated latex, processed and preserved, and is a value added product, the charging entry in the schedule of the Sales Tax Act provides for levy of tax on rubber in all it's forms referred therein at the last purchase point in the State. This is the position declared by the Supreme Court in assessee's case vide judgment reported in State of Kerala and others v. Kurian Abraham pvt. ltd &

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another [2008] 13 VST 1 (SC) . However, since field latex is used in the production of centrifuged latex, and since the Division Bench of this Court in an earlier judgment held that both are different products, respondent voluntarily filed returns declaring tax liability on the purchase value of field latex and paid tax thereon. The centrifuged latex manufactured by the respondent was partly sold locally within the State without payment of tax

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S.T.Rev.Nos.138, 139, 140, 141,142 of 2010

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as item is taxable at purchase point by the last purchaser and partly sold to dealers outside the State by paying tax under CST Act. Even though, taxable turn over was returned by the respondent on purchase of field latex and tax was remitted, the respondent claimed that the tax was remitted by mistake and claimed exemption based on the notification S.R.O.No.695/2003. Refund claimed was denied for the reason that the notification granting retrospective exemption specifically prohibits grant of refund of tax paid. Even though, first appeal was dismissed, the Tribunal on second appeal relying on the principles laid down by the Supreme Court

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in the case of Corporation Bank v. Saraswati Abharanasala and another reported in [2009] 19 VST 84 (SC) ordered refund of the tax remitted by the respondent. It is against these orders, revisions are filed by the State for the years 1999-2000, 2000-2001, 2002-2003, 2003-2004 and 2004-2005. The Special Government Pleader appearing for the State produced a copy of S.R.O.No.123/2010 dated 2/2/2010 issued by the State subsequently with retrospective effect from 1^st April, 1998 to 9^th October, 2001, reaffirming the same view as in S.R.O.No.695/2003. According to the Government Pleader, this Government Order issued subsequently justifies reversal of Tribunal's order.

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After hearing both sides, what we notice is that the fundamental basis on which the Tribunal decided the issue based on the decision of

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S.T.Rev.Nos.138, 139, 140, 141,142 of 2010

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the Supreme Court in Corporation Bank v. Saraswati Abharanasala and

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another , is wrong. In this case, tax was paid by the respondent voluntarily and the tax paid is on raw material which normally goes to add to the cost of raw material and is passed on to customer along with product price. So much so, the tax remitted by the respondent on which refund is claimed is the tax collected when the product is sold as part of price. It is in this context only, the State has relied on the notification issued by the State namely, S.R.O.No.695/2003 to the effect that the tax paid on field latex which is raw material for the respondent should not be refunded. The counsel for the respondent contended that there is no separate collection of tax on purchase of field latex along with price. Of course, it is impossible for the product manufacturer to collect tax on purchase of raw material when commodity is taxable at purchase point. However the question is whether the tax on raw material namely, field latex is included in the product price and passed on to the customer. This is a matter to be seen by comparing the purchase price, cost of manufacturing and the product price. Normal accounting practice does not justify the manufacturer to fix the manufacturing cost without including tax component on raw material. However, if respondent is engaged in any other way of recouping tax on raw material, other than inclusion in the product price, they could be given an opportunity to establish before the

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S.T.Rev.Nos.138, 139, 140, 141,142 of 2010

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officer by production of profit and loss account, balance sheet and pattern of recovery of tax on raw material.

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Law settled by various decisions of Supreme Court such as Mafatlal Industries Ltd. v.Union of India & others ( [1998] 111 STC 467) and State of Maharashtra & others v.Swanstone multiplex Cinema (P) Ltd (2010) 18 KTR 453 (SC) is to the effect that refund of tax should not be granted if it results in unjust enrichment. In other words, if tax paid forms part of price and is passed on to the the purchaser, then the respondent is not entitled to unjustly enrich themself by getting refund of tax remitted voluntarily that is passed on along with product price to the purchaser. In order to consider these matters, we remand these assessments to the Assessing Officer.

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Assessing authority shall specifically examine the scope of other notifications S.R.O.Nos 316/2005, 946/2007 and 123/2010 while deciding the matter. We allow the revisions by setting aside the orders of Tribunal and the first appellate authority and remand the matter to the assessing authority to re-consider the claim of the respondent for refund after giving an opportunity to the respondent to establish that tax paid on raw material is not passed on to the purchasers by including in the product price. The respondent shall produce a copy of this judgment before the assessing authority.

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S.T.Rev.Nos.138, 139, 140, 141,142 of 2010

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It will be open to the assessee to apply for CST exemption based on this judgment and if the assessee comes up with such a claim, the Assessing Officer shall grant exemption on CST based on the tax paid under KGST Act. However refund either of KGST or CST should be based on the principles stated above.

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C.N.RAMACHANDRAN NAIR,JUDGE.

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BABU MATHEW P.JOSEPH, JUDGE.

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Su/-

State of Kerala v. M/S Kurian Abraham(P)Ltd,Kottayam.

Case brief

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State of Kerala v. M/S Kurian Abraham(P)Ltd,Kottayam.

Case brief

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